Ch. 11

Question 1

Derived demand

Answer 1

The demand for an input derives from the demand for the stuff that input produces

Question 2

income effect

Answer 2

Measures how people’s choices change when they have more income. A higher wage increases your income, leading you to choose more leisure and hence less work

Question 3

labor supply

Answer 3

The time you spend working in the market

Question 4

marginal product of labor

Answer 4

The extra production that occurs from hiring an extra worker

Question 5

marginal revenue product

Answer 5

Measures the marginal revenue from hiring an additional worker. The marginal revenue product is equal to the marginal product of labor multiplied by the price of that product

Question 6

Rational Rule for Employers

Question 7

Rational Rule for Workers

Answer 7

Work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure

Question 8

substitution effect

Answer 8

Measures how people respond to a change in relative prices. A higher wage increases the returns to work relative to leisure, leading you to work more